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The markets began the day somewhat weak, but then seemed to slowly but steadily strengthen as the day went on. Traders took some confidence from the increases in the August PPI numbers - higher prices normally suggest more demand for goods. RUT closed at $605 and the SPX closed at $1053. Seven of the last eight trading sessions have been positive gainers - a rather impressive record.
My September iron condors are being squeezed on the topside; I am looking for the right opportunity to close the $620/$630 call spreads. The position stands at +$2,050, delta = -$244 and theta = +$1,418. That large delta reflects how close the index is to our short call strikes - truly alarming if we weren't so close to expiration. I added a Nov $640 call to my Oct iron condors today for $1,160. They now stand at a net loss of -$465, delta = -$53 and theta = +62. If the markets continue upward, I will add one more long Nov call.
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As some of you know, my web site was hit by hackers last week and my blog has been incapacitated until earlier today. We closed the holes and are in the process of moving to a more secure hosting environment. I added one additional feature when bringing the blog back up. You can now click on the Comments link and add your comments or questions to the latest blog entry.
The markets started the day with weakness and traded sideways through much of the day. Then traders began buying and pushed stocks higher, forcing many short positions to cover late in the session, forcing prices even higher. RUT closed at $600, a new high for the year. My Sept iron condors now stand at a net gain of $2,550 with position delta = -$166 and theta = +$680 - huge theta! The delta of the Sept $620 calls is 9, slightly over one standard deviation OTM. Unless the RUT pulls back quite a bit, I will be closing the call spreads sometime before Thursday's close.
My October iron condors are near breakeven at -$95 for the overall position and position delta of -$80 and theta = +$71. The delta of the short $640 calls = 18. Both the theta/delta ratio having dropped below 1:1 and the short delta of 18 are dictating an adjustment. If the market continues higher tomorrow, I will be looking to buy at least one Nov $640 call.
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The markets continue to have a bias to the upside, although the pace has moderated significantly. The Russell 2000 Index (RUT) closed up at $576.38, nearing its resistance level of $580-$589, set the last week of August. The Standard and Poors 500 (SPX) closed at $1025.39, near its resistance level of $1035-$1039.
My Sept iron condors are in excellent shape as we wind down toward September expiration with P/L = +$3,210, delta = -$37, and theta = +$137. The Oct condors are much farther from expiration, but are in good shape with a P/L = +$625, delta = -$29, and theta = +$61.
I tried an experiment this holiday weekend. I recorded the closing prices for all of the options in my September and October condors on Friday and then adjusted for the RUT price change (delta) and IV change (vega) this morning and compared those adjusted prices to the market prices. If the market makers had completely adjusted their prices Friday for the three days of time decay, one would expect my adjusted prices to be high since I had not accounted for any time decay. As it turns out, it is about half and half (based on one rough set of data); it appears that most of the time decay was already taken out of about half of these options, but not all of the decay was accounted for in about half of the options. So the lesson is this: if you are establishing any positive theta positions before a long holiday weekend, put them on early Friday at the latest; Thursday is probably better. By Friday afternoon, much, but probably not all, of the time decay has already been factored in the option price.
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The markets started the day on a positive note and the RUT and SPX traded up to their recent resistance levels, but then retreated after the Fed's Beige Book was released with virtually no positive news on the economy. But then the bulls tossed the Beige Book aside and drove the market into the bell with the RUT closing up over $10 to $586.40 and SPX closing at $1033.37. This leaves both indexes right at their resistance levels; it will be interesting to see if the bulls can drive through to higher highs.
My Sept iron condor (20 contracts of the 480/490 puts, 10 contracts of the 500/510 puts, and 30 contracts of the 620/630 calls) stands at a P/L of +$2,780, delta =-$76, and theta = +$240; theta is really gaining as we roll down to the last week of these options. The Oct iron condor (15 contracts of the 460/470 puts and 15 contracts of the 640/650 calls) has a P/L of +$400, delta =-$45, and theta = +$65. The Oct $640 calls stand right at one standard deviation OTM with a delta of 12. I will adjust this condor if the delta of this short call exceeds 17-18.
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The unemployment report surprised us with an increase to 9.7%, but this didn't faze the market. This market's resilience has surprised me over the past several sessions; it continues to shake off bad news and rally back from intra-day lows. RUT and SPX both closed up at $571 and $1016, respectively. However, the trading volume was low today going into the holiday weekend, so it is hard to have much confidence in one's conclusions here. Just reading the chart leads one to believe the dangers to delta neutral traders remain on the top side; however, I still have not seen much to make me optimistic about this economy. But the market doesn't agree with me. So I will continue to play what the market gives me, even while I am scratching my head.
My Sept iron condor stands at a P/L of +$2,740, delta = -$17, and theta = +$162 - excellent numbers. The Oct iron condor still has 41 days left in it, so the numbers aren't as pretty: P/L of +$550, delta = -$16, and theta = +$57. But they aren't bad. The theta/delta ratio is still very strong at 3.5.
With my positions sitting pretty, it will be easy to relax this holiday weekend. I hope you get to spend some quality time with family and friends.
